April 1998 MEDICARE BILLING - gao.gov · uniformly accepted coding system, called the physicians’...

United States General Accounting Office

GAO Report to the Chairmen, Committee onCommerce, House of Representatives,and the Special Committee on Aging,U.S. Senate

April 1998 MEDICARE BILLING

Commercial SystemCould Save Hundredsof Millions Annually

GAO/AIMD-98-91

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

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April 15, 1998

The Honorable Tom BlileyChairman, Committee on CommerceHouse of Representatives

The Honorable Charles E. GrassleyChairman, Special Committee on AgingUnited States Senate

During fiscal year 1997, Medicare reported it paid about $207 billion inhealth care benefits for 39 million beneficiaries. Of these payments, about$44 billion was for physicians’ services. Physicians use about 7,000procedure codes to bill Medicare for payment; these codes are updatedannually to reflect changes in medical practice. Because of the largenumber of claims and the complexity of the uniformly accepted codingsystem, automated claims auditing systems are necessary to helpdetermine if the claims are appropriate.

In 1991, the Inspector General of the Department of Health and HumanServices (HHS) reported that commercially available claims auditingsystems could save $12 million annually at one Medicare processing sitealone.1 Similarly, in 1995 we reported that, nationally, such systems couldsave over $600 million annually by helping Medicare avoid payinginappropriate claims.2

Initially, the Health Care Financing Administration (HCFA)—the agencyresponsible for administering Medicare—chose to develop its own systemrather than to acquire a commercial system. In February 1991, HCFA

directed its carriers to begin developing claims auditing edits. In August1994, it awarded a contract to further develop these edits, called thecorrect coding initiative (CCI), which it now owns and began using inJanuary 1996.

Subsequent to our 1995 report, HCFA awarded a contract on September 30,1996, to test a commercial claims auditing system in Iowa. At your request,we evaluated whether HCFA used an adequate methodology for testing the

1Manipulation of Procedure Codes by Physicians to Maximize Reimbursement, Office of InspectorGeneral, Department of Health and Human Services, CIN: A-03-91-00019, August 30, 1991.

2Medicare Claims: Commercial Technology Could Save Billions Lost to Billing Abuse(GAO/AIMD-95-135, May 5, 1995).

GAO/AIMD-98-91 Medicare BillingPage 1

http://www.gao.gov/cgi-bin/getrpt?AIMD-95-135

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commercial claims auditing system for potential nationwideimplementation with its Medicare claims processing systems.

Results in Brief The test methodology HCFA used in Iowa was consistent with the approachused by other public health care insurers who have already implemented acommercial claims auditing system. HCFA’s test covered 15 months andincluded extensive work, such as modifying the system’s software tocomply with Medicare payment policies. The test showed that thecommercial claims auditing system could save Medicare up to $465 millionannually with claims auditing edits that detect inappropriately codedclaims.3 These savings are in addition to any results from CCI which,according to HCFA, saved Medicare about $217 million in 1996.

While HCFA used an adequate methodology to test the system anddemonstrated that commercial claims auditing edits could result insignificant savings, two critical management decisions would haveunnecessarily delayed implementation for several years, resulting inpotentially hundreds of millions of dollars in lost savings annually. First,HCFA limited its 1996 test contract to the test, and did not include aprovision for implementing the commercial system throughout theMedicare program. Thus, to acquire a commercial system for nationwideimplementation, up to an additional year may be required to complete allactivities necessary to plan for and award another contract. This couldalso result in substantial rework to adapt the system if a differentcontractor were to win the new contract. HCFA’s administrator told us thatHCFA is evaluating legal options for expediting the contracting process.

Second, in addition to the potential delay from the test contract limitation,following the test HCFA initially planned to develop its own claims auditingedits rather than to acquire commercial edits, such as those used in thetest. Under this plan, HCFA would have obtained a development contractorthat may, or may not, have existing claims auditing edits. If the winningcontractor did not have existing edits on which to build, it could takeyears to complete the HCFA-owned edits. Near the conclusion of our reviewHCFA representatives told us this approach would have allowed them tomake the edits available to the public and avoid being obligated to onevendor’s commercial edits and related fees. Public health care insurers forthe Departments of Defense and Veterans Affairs and several stateMedicaid agencies did not take this approach, opting to lease commercial

3Claims auditing edits consist of a database table, which contains the rules and auditing logic thatsystems use to identify inappropriately coded claims. For example, these edits identify suchinappropriate claims as mutually exclusive procedures.


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systems instead of owning the claims auditing edits. Further, HCFA’sapproach (1) is not supported based on HCFA’s lengthy CCI developmenteffort and the test findings, (2) may not provide the magnitude of savingsof a commercially available system, and (3) would further delayimplementation of a national claims auditing system.

In March 1998, after considering our findings and other issues, theAdministrator of HCFA told us that HCFA’s plans have changed, and that theagency planned to begin immediately to acquire commercial claimsauditing edits.

Background Medicare, authorized in 1965 under Title XVIII of the Social Security Act, isa federal health insurance program providing coverage to individuals 65years of age and older and to many of the nation’s disabled. HCFA usesabout 70 claims-processing contractors, called intermediaries and carriers,to administer the Medicare program. Intermediaries primarily handle partA claims (those submitted by hospitals, skilled nursing facilities, hospices,and home health agencies), while carriers handle part B claims (thosesubmitted by providers, such as physicians, laboratories, equipmentsuppliers, outpatient clinics, and other practitioners).

Voluminous, ComplexBilling Codes Can CauseInappropriate Payments

The use of incorrect billing codes is a problem faced both by public andprivate health insurers. Medicare pays part B providers a fee for eachcovered medical service identified by the American Medical Association’suniformly accepted coding system, called the physicians’ CurrentProcedural Terminology (CPT).4 The coding system is complicated,voluminous, and undergoes annual changes; as a result, physicians andother providers often have difficulty identifying the codes that mostaccurately describe the services provided. Not only can such complexitieslead providers to inadvertently submit improperly coded claims, in somecases it makes it easier to deliberately abuse the billing system, resultingin inappropriate payment. The examples in table 1 illustrate several codingcategories commonly used in inappropriate ways.

4Medicare’s complete coding system is known as the HCFA Common Procedural Coding System, orHCPCS, and in addition to CPT includes codes for medical equipment, prescription drugs, and otherservices and items not covered by CPT.


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Table 1: Categories of InappropriateCoding Category Description

Mutually exclusive Billing for two or more procedures usuallynot performed on the same patient on thesame day, such as both a closed and anopen treatment of a fracture.

Incidental procedure Billing for both an incidental procedureand a more complex primary procedure,when the incidental procedure requiresfew additional physician resources or isclinically integral to the performance of theprimary procedure, such as control ofintraoperative bleeding with atonsillectomy.

Diagnosis to procedure comparison Billing for procedures that are unexpectedfor a given diagnosis, such as a cornealtransplant with a diagnosis of pneumonia.

Commercial SystemPotential Tool forCombating InappropriateBilling/Payment

Commercial claims-auditing systems for detecting inappropriate billinghave been available for a number of years; as early as 1991, commercialfirms marketed specialized auditing systems that identify inappropriatelycoded claims. The potential value of such a system to Medicare has beennoted both by the HHS Inspector General (in 1991) and by us (in 1995). Infact, both the Inspector General and we noted that such a tool could savethe Medicare program hundreds of millions of dollars annually.

Recognizing its need to address the inappropriate billing problem, HCFA

directed its carriers to begin developing claims auditing edits inFebruary 1991. In August 1994, it awarded a contract to further developthese claims auditing edits, called CCI, which it now owns and operates.According to HCFA, the CCI edits helped Medicare save about $217 million in1996 by successfully identifying inappropriate claims. Nevertheless,inappropriate coding and resulting payments continue to plague Medicare.Last summer HHS’ Office of Inspector General reported that about$23 billion of Medicare’s fee for service payments in fiscal year 1996 wereimproper, and that about $1 billion of this amount was attributable toincorrect coding by physicians.5

On September 30, 1996, HCFA initiated action to improve its capability todetect inappropriate claims and payment. It awarded a contract to HBO &Company (HBOC), a vendor marketing a claims-auditing system, to test the

5Report on The Financial Statement Audit of The Health Care Financing Administration For FiscalYear 1996, Office of Inspector General, Department of Health and Human Services, A-17-95-00096,July 17, 1997.


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vendor’s system in Iowa and evaluate whether it could be effectively usedthroughout the Medicare program.

Objective, Scope, andMethodology

Our objective was to determine if HCFA was using an adequatemethodology for testing the commercial claims auditing system in Iowa forpotential implementation with its Medicare claims processing systems.

To do this, we analyzed documents related to HCFA’s test, including the testcontract, test plans and methodologies, test results and status reports, andtask orders. This analysis included assessing the limitations of the testcontract, size of the test claims processing sample, representation of usersinvolved with the test, and information provided to management in itsoversight role. We also met with HCFA staff responsible for conducting thetest to obtain further insight into HCFA’s test methodology. While wereviewed the reports of HCFA’s estimated savings, we did not independentlyvalidate the reported savings by validating the sample of paid claims usedas the basis for projecting them. However, the magnitude of HCFA’sestimated savings is in line with our earlier estimate of potential annualsavings from such systems.

We observed operations at the test site in Des Moines, Iowa, and assessedthe carrier officials’ role in the test. We visited HBOC offices in Malvern,Pennsylvania, and the Plano, Texas, headquarters of Electronic DataSystems (EDS), the part B system maintainer, into whose system theclaims-auditing system was integrated. During these visits, we documentedthese companies’ roles and responsibilities in testing the system. Also, inAugust 1997 at a 3-day conference at HCFA headquarters, we observed thetest team’s effectiveness and objectivity in discussing the progress made todate and in developing solutions to issues still needing resolution.

We compared the adequacy of HCFA’s test methodology with themethodologies used by other public health care insurers to test andintegrate a commercial claims-auditing system. We visited offices of theseinsurers and analyzed documents describing their test and integrationapproach. Finally, we compared the approach used by these insurers withHCFA’s. The insurers whose methodologies we analyzed consisted of theDepartment of Defense’s TRICARE support office (formerly called theCivilian Health and Medical Program of the Uniform Services (CHAMPUS))in Aurora, Colorado; Civilian Health and Medical Program of theDepartment of Veterans Affairs (CHAMPVA) in Denver, Colorado; and the


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Kansas and Mississippi state Medicaid agencies in Topeka, Kansas, andJackson, Mississippi, respectively.

To evaluate HCFA’s decisions regarding national implementation of acommercial claims-auditing system, we reviewed the contract and otherdocuments related to the test and evaluated their impact on HCFA’s abilityto implement a claims-auditing system nationally. We also discussed HCFA’srationale for these decisions with senior HCFA officials.

Finally, to assess HCFA’s experience in acquiring and using the HCFA-ownedCCI claims auditing edits, we reviewed the CCI contract (and relateddocuments). We discussed this project and its results with cognizant HCFA

officials. We performed our work from July 1997 through March 1998, inaccordance with generally accepted government auditing standards. HCFA

provided written comments on a draft of this report. These comments arepresented and evaluated in the “Agency Comments and Our Evaluation”section of this report, and are included in appendix I.

HCFA TestMethodologyAdequate, Similar toThat of Other PublicHealth Insurers

HCFA used a test methodology that was comparable with processesfollowed by other public insurers who have successfully tested andimplemented such commercial systems. HCFA’s test showed thatcommercial claims auditing edits could achieve significant savings.

Other public insurers—CHAMPVA, TRICARE, and the Kansas and MississippiMedicaid offices—each used four key steps to test their claims-auditingsystems prior to implementation. Specifically, they (1) performed adetailed comparison of their payment policies with the system’s edits todetermine where conflicts existed, (2) modified the commercial system’sedits to comply with their payment policies, (3) integrated the system intotheir claims payment systems, and (4) conducted operational tests toensure that the integrated systems properly processed claims. Theseinsurers’ activities were comprehensive and required significant time tocomplete. CHAMPVA took about 18 months to integrate the commercialsystem at one claims processing site. TRICARE took about 18 months tointegrate the system at two sites. It allowed about 2 years to implement themodified system at its nine remaining sites.

HCFA’s methodological approach was similar. From the contract award onSeptember 30, 1996, through its conclusion on December 29, 1997, HCFA

and contractor staff made significant progress in integrating the testcommercial system at the Iowa site and evaluating its potential for


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Medicare use nationwide. HCFA used two teams to concentrate separatelyon the policy evaluation and technical aspects of the test.

The policy evaluation team consisted of HCFA headquarters individuals andKansas City (Missouri) and Dallas regional office staff knowledgeable ofHCFA policies and the CPT billing codes, as well as individuals representingthe Iowa carrier and HBOC. This team conducted a detailed comparison ofthe commercial system’s payment policy manuals with Medicare policymanuals to identify conflicting edits. The reviews identifiedinconsistencies that both increased and decreased the amount of Medicarepayments. For example, the commercial system pays for the higher costprocedure of those deemed mutually exclusive, while Medicare policydictates paying for the lower cost procedure. Conversely, the commercialclaims-auditing system denies certain payments for assistant surgeons,whereas Medicare policy allows these payments. These and all otherconflicts identified were provided to the vendor, who modified thesystem’s edits to be consistent with HCFA policy.

The technical team consisted of staff from HCFA’s headquarters and itsKansas City (Missouri) and Dallas regional offices; HBOC; EDS; and the Iowacarrier. This team prepared and carried out three critical tasks. First, itdeveloped the design specifications and related computer code necessaryfor integrating the commercial system into the Medicare claims-processingsoftware. Second, it integrated the claims auditing system into theMedicare part B claims-processing system. Finally, the team conductednumerous tests of the integrated system to determine its effect onprocessing times and its ability to properly process claims. HCFA

management was kept apprised of the status of the test through biweeklyprogress reports and frequent contact with the project management team.

HCFA reported that the edits in this commercial system could saveMedicare up to $465 million annually by identifying inappropriate claims.Specifically, the analysis showed that the system’s mutually exclusive andincidental procedure edits could save about $205 million, and thediagnosis-to-procedure edits would save about $260 million. HCFA’sanalysis was based on a national sample of paid claims that had alreadybeen processed by the Medicare part B systems and audited forinappropriate coding with the HCFA-owned CCI edits. While we reviewedthe reports of HCFA’s estimated savings, we did not independently verifythe national sample from which these savings were derived. However, themagnitude of savings when added to the savings from CCI, which HCFA


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reported to be about $217 million in 1996, is in line with our earlierestimate that about $600 million in annual savings are possible.6

Test officials also concluded that the claims-processing portion of the testsystem’s software provides little, if any, added value since the existing partB claims processing system already handles this function. Further, the testshowed that integrating the commercial system’s claims-processingfunction with the existing claims processing system could significantlyincrease processing time and delay payment.

On November 25, 1997, HCFA officials notified the administrator about thesuccess of the commercial system test. They reported that the test showedthat the system’s claims auditing edits could save Medicare up to$465 million annually, which is in addition to the savings provided by theCCI edits.

ManagementDecisions Could HaveCost Months andHundreds of Millionsof Dollars

Despite the success of the test, two key management decisions, if leftunchanged, could have significantly delayed national implementation. Onedecision was to limit the test contract to the test, and not include aprovision for nationwide implementation, thus delaying implementation ofcommercial claims auditing edits into the Medicare program. Thesecond—HCFA’s initial plan following the test to award a contract todevelop its own edits rather than acquiring commercial edits such as thoseused in the test—would have potentially not only required additional timebefore implementation, but could well have resulted in a system that is notas comprehensive as commercially available edits.

In March 1998, the Administrator of HCFA, told us that HCFA’s plans havechanged. She said HCFA (1) is evaluating legal options for expediting thecontracting process, and (2) now plans to begin immediately to acquirecommercial claims auditing edits.

Limited Test ContractDelays NationalImplementation

HCFA limited the use of the test system to its Iowa testing site—just one ofits 23 Medicare part B claims-processing sites and did not include aprovision for implementation throughout the Medicare program. As aresult, additional time will be needed to award another contract toimplement either the test system’s claims auditing edits or any otherapproach throughout the Medicare program. A contracting official

6As with any claims editing, some of the denied items will likely be appealed and paid. The estimatesare not adjusted for this. In addition, diagnosis-to-procedure edits have not yet been reviewed forconsistency with Medicare policies.


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estimated that it could take as much as a year to award another contractusing “full and open” competition—the contracting method normally usedfor such implementation. This would involve preparing for and issuing arequest for proposals, evaluating the resulting bids, and awarding thecontract. HCFA’s estimated savings of up to $465 million per yeardemonstrate the costs associated with delays in implementing suchpayment controls nationwide.

Awarding a new contract could result in additional expense to eitherdevelop new edits or for substantial rework to adapt the new system’sedits to HCFA’s payment policy if a contractor other than the oneperforming the original test wins the competition. If another contractorbecame involved, this would mean that much of the work HCFA performedduring the 15-month test would have to be redone. Specifically, this wouldinvolve evaluating the new claims auditing edits for conflict with agencypayment policy.

Instead of limiting the test contract to the test site, HCFA could havefollowed the approach used by TRICARE, which awarded a contract thatprovided for a phased, 3-year implementation at its 11 processing sitesfollowing successful testing. In March 1998, HCFA’s administrator told usthat HCFA is doing what it can to avoid any delay resulting from this limitedtest contract. She said HCFA is evaluating legal options to determine ifother contracting avenues are available, which would allow HCFA toexpedite national implementation of commercial claims auditing edits.

Initial HCFA Plan toDevelop Own ClaimsAuditing Edits Would HaveBeen Costly and CouldHave Been Ineffective

In reporting the test results, HCFA representatives recommended that theHCFA administrator award a contract to develop HCFA-ownedclaims-auditing edits, which would supplement CCI, rather than to acquirethese edits commercially. They provided the following key reasons for thisposition. First, they said this approach could cost substantially less thancommercial edits because (1) HCFA would not always be required to usethe same contractor to keep the edits updated, (2) it would not be requiredto pay annual licensing fees, and (3) the developmental cost would bemuch less than using commercial edits. Second, they said this approachwould result in HCFA-owned claims-auditing edits, which are in the publicdomain, allowing HCFA to continue to disclose all policies and codingcombinations to providers—as is currently done with the CCI edits. Theyalso explained that if a vendor of a commercial claims auditing systemchooses to bid, wins this contract, and agrees to allow its claims auditingedits to be in the public domain as they are with CCI, HCFA will allow the


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vendor to start with its existing edits, which should shorten thedevelopment time.

We do not agree that this approach is the most cost-effective. First,upgrading the edits by moving from the contractor who develops theoriginal edits to one unfamiliar with them would not be easy and could becostly because this is a major task, which is facilitated by a thoroughclinical knowledge of the existing edits. For example, the Iowa test systemcontains millions of edits, which would have to be compared againstannual changes in the CPT codes. Second, the annual licensing fees thatHCFA would avoid with HCFA-owned edits would be offset somewhat by theneed to pay a contractor with the clinical expertise offered by commercialvendors to keep the edits current. Third, while the commercial edits couldcost more than HCFA-owned ones, this increased cost has been justified byHCFA’s test results, which demonstrated that commercial edits providesignificantly more Medicare savings than HCFA-developed edits.

Regarding HCFA’s initial plan to fully disclose the HCFA-owned edits as theyare with CCI, this policy is not mandated by federal law or explicitMedicare policies, nor is it followed by other public insurers, and it couldresult in potential contractors declining to bid. In a May 1995memorandum from HHS to HCFA, the HHS Office of General Counselconcluded that federal law and regulations do not preclude HCFA fromprotecting the proprietary edits and related computer logic used incommercial claims auditing systems. Further, according to HCFA’s deputydirector, Provider Purchasing and Administration Group, HCFA has noexplicit Medicare policies that require it to disclose the specific edits usedto audit providers’ claims. Likewise, other public health care insurers,including CHAMPVA, TRICARE, and the two state Medicaid agencies wevisited, do not have such a policy, and are indeed using commercialclaims-auditing systems without disclosing the details of the edits. Ratherthan disclose the edits, these insurers notified providers that they wereimplementing the system and provided examples of the categories of editsthat would be used to check for such disparities as mutually exclusiveclaims. This approach protects the proprietary nature of the commercialclaims auditing edits.

Finally, the development time would likely be shortened if a commercialclaims auditing vendor is awarded this contract and uses its existing editsas a starting point. However, if the request for proposals requires thatthese edits be in the public domain, it is doubtful that such vendors wouldbid on this contract using their already developed edits. An executive of a


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vendor that has already developed a claims auditing system told us that hiscompany would not enter into such a contractual agreement if HCFA insistson making the edits public, because this would result in the loss of theproprietary rights to his company’s claims auditing edits.

Although HCFA’s then director of the Center for Health Plans and Providers,recommended that HCFA develop its own edits, he also acknowledged thatthis approach could result in a less effective system than use of acommercial one. In a November 25, 1997, memorandum to theadministrator assessing the results of the commercial test, the directorstated that there were several “cons” to developing HCFA-owned edits. Heconcluded that “the magnitude of edits approved for nationalimplementation could potentially be less [than using commercial edits],depending on the number of edits developed and reviewed for acceptanceprior to the implementation date.” He also stated that “there could be aperception that HCFA is unwilling to take full advantage of the technologyand clinical expertise offered by [commercial system] vendors.”

Furthermore, HCFA’s initial plan to develop its own claims-auditing editswas inconsistent with Office of Management and Budget (OMB) policy inacquiring information resources. OMB Circular A-130, 8b(5)(b) states that inacquiring information resources, agencies shall “acquire off-the-shelfsoftware from commercial sources, unless the cost-effectiveness ofdeveloping custom software to meet mission needs is clear and has beendocumented.” HCFA has not demonstrated that its plan to developHCFA-owned claims auditing edits is cost-effective. A key factor showingotherwise is HCFA’s estimate that every year it delays implementing claimsauditing edits of the caliber of those used in the commercial test system inIowa, about $465 million in savings could be lost.

Developing comprehensive HCFA-owned claims auditing edits could takeyears, during which time hundreds of millions of dollars could be lostannually due to incorrectly coded claims. To illustrate: HCFA begandeveloping its CCI database of edits in 1991 and has continued to improve itover the past 6 years. While HCFA reported that CCI identified about$217 million in savings (in the mutually exclusive and incidental procedurecategories) in 1996, CCI did not identify an additional $205 million in thosecategories identified by the test edits nor does it address thediagnosis-to-procedure category, where the test edits identified anadditional $260 million in possible savings. Furthermore, HCFA has noassurance that the HCFA-owned edits would be as effective as availablecommercial edits.


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In March 1998, after considering our findings and other factors, theAdministrator, HCFA told us that she now plans to take an approachconsistent with the test results. She said she plans to acquire andimplement commercial claims auditing edits.

Conclusions HCFA followed an approach in testing and evaluating the commercialclaims auditing system that was consistent with the approach used byother public health care insurers. This test showed that using this system’sedits in the Medicare program can save up to $465 million annually.However, the Medicare program is losing millions each month that HCFA

delays implementing such comprehensive claims auditing edits.

Two critical HCFA decisions could have unnecessarily delayedimplementation for several years and prevented HCFA from taking fulladvantage of the substantial savings offered by this technology. Thesedecisions—to limit the test contract to the test and not include a provisionfor national implementation, and to develop HCFA’s own edits rather thanacquiring commercial ones—would have resulted in costly delays andcould have resulted in an inferior system. However, we believe thesedecisions were appropriately changed by the administrator in March 1998.The administrator’s current plans for expediting national implementationand acquiring commercial claims auditing edits should, if successfullyimplemented, help HCFA take full advantage of the potential savingsdemonstrated by the commercial test.

Recommendations To implement HCFA’s current plans to expeditiously realize dollar savingsin the Medicare program through the use of claims auditing edits, werecommend that the Administrator, Health Care Financing Administration

• proceed immediately to purchase or lease existing comprehensivecommercial claims auditing edits and begin a phased nationalimplementation, and

• require, in any competition, that vendors have comprehensive claimsauditing edits, which at a minimum address the mutually exclusive,incidental procedure, and diagnosis-to-procedure categories ofinappropriate billing codes.

Agency Commentsand Our Evaluation

HCFA agreed with our recommendations in this report and stated that it isproceeding immediately with a two-phased approach for procuring and


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implementing commercially developed edits for the Medicare program.During the first phase, HCFA plans to immediately implementprocedure-to-procedure edits, such as those described in the mutuallyexclusive and incidental procedure categories in table 1. According toHCFA, the second phase will be used to complete its determination of theconsistency of diagnosis-to-procedure edits with Medicare coveragepolicy—which was begun during the test—and then implement the editsas quickly as possible. HCFA added that, as part of this process, it will alsoconsider modifying national coverage policy, where appropriate, to meetprogram goals. It cautioned that the amount of the projected savings fromthe commercial test may decrease once its full analysis is complete.

We are encouraged that HCFA concurs with our recommendations and isproceeding immediately to take advantage of this commercial claimsauditing tool, which can save Medicare hundreds of millions of dollarsannually. HCFA’s comments and our detailed evaluation of them are inappendix I.

As agreed with your offices, unless you publicly announce its contentsearlier, we will not distribute this report until 30 days from the date of thisletter. At that time, we will send copies to the Secretary of Health andHuman Services; the Administrator, Health Care Financing Administration;the Director, Office of Management and Budget; the Ranking MinorityMembers of the House Committee on Commerce and the Senate SpecialCommittee on Aging; and other interested congressional committees. Wewill also make copies available to others upon request.

If you have any questions, please call me at (202) 512-6253, or MarkHeatwole, Assistant Director, at (202) 512-6203. We can also be reached bye-mail at [email protected] and [email protected],respectively. Major contributors to this report are listed in appendix II.

Joel C. WillemssenDirector, Civil Agencies Information Systems


Contents

Letter 1

Appendix I Comments From theHealth Care FinancingAdministration

16

Appendix II Major Contributors toThis Report

20

Table Table 1: Categories of Inappropriate Coding 4

Abbreviations

CCI Correct Coding InitiativeCHAMPUS Civilian Health and Medical Program of the Uniform

ServicesCHAMPVA Civilian Health and Medical Program of the Department of

Veterans AffairsCPT Current Procedural TerminologyEDS Electronic Data SystemsHBOC HBO & CompanyHCFA Health Care Financing AdministrationHHS Department of Health and Human ServicesOMB Office of Management and BudgetTRICARE Formerly the Civilian Health and Medical Program of the

Uniform Services


Appendix I

Comments From the Health Care FinancingAdministration


Appendix I

Comments From the Health Care Financing

Administration

See comment 1.

See comment 2.Now on p. 4.


Appendix I


Administration

See comment 3. (p. 7.)





Appendix I


Administration

The following are GAO’s comments on the Department of Health CareFinancing Administration’s letter responding to a draft of this report.

GAO Comments 1. We are encouraged that HCFA concurs with our recommendations and isproceeding immediately to take advantage of this commercial claimsauditing tool. If effectively implemented, according to test results,commercial claims auditing edits should save Medicare hundreds ofmillions of dollars annually. Further, we are pleased that, in addition todetermining that the commercial edits are consistent with HCFA policy,HCFA also plans to evaluate its national coverage policy to determine if italso needs modification. This dual assessment should improve the overalleffectiveness of the final implemented edits. Finally, although the amountof HCFA’s projected savings may decrease once its full analysis is complete,its projected annual savings of $465 million is so large that, most likely,even a reduced figure will still be significant.

2. As stated, the HHS Office of the Inspector General identified its findingsthrough a manual review. The Inspector General’s report findings includedexamples of improper billing for incidental procedures. Thus, commercialsystems could have detected some of the errors identified in the InspectorGeneral’s report. While HCFA is correct in asserting that other identifiedproblems would not typically be identified by the type of commercialclaims editing system discussed in this report, other types of automatedanalytical claims analyses systems are available to examine profiles ofprovider submitted claims for targeting investigations of potential fraud.See our reports titled Medicare: Antifraud Technology Offers SignificantOpportunity to Reduce Health Care Fraud (GAO/AIMD-95-77, Aug. 11,1995) and Medicare Claims: Commercial Technology Could Save BillionsLost to Billing Abuse (GAO/AIMD-95-135, May 5, 1995).

3. We considered HCFA’s suggested wording changes and haveincorporated them as appropriate.




Appendix II

Major Contributors to This Report

Accounting andInformationManagement Division,Washington, D.C.

Mark E. Heatwole, Assistant DirectorElizabeth A. Roach, Senior Business Process AnalystMichael P. Fruitman, Communications Analyst

Kansas City RegionalOffice

John B. Mollet, Senior EvaluatorJohn G. Snavely, Staff Evaluator

(511227) GAO/AIMD-98-91 Medicare BillingPage 20

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